Hundreds of borrowers could be in line for compensation payments after Cheltenham & Gloucester (C&G) announced today it did not plan to challenge an ombudsman's ruling over its dual mortgage rate.

Last week the Financial Ombudsman Service ordered

the former building society to reimburse a customer the money which would have been saved if the customer had been allowed to switch to the lower of the group's two standard variable rates.

C&G said today it had decided not to appeal against the judgment, and would be writing to the hundreds of customers who could now qualify for similar payments within the next two weeks.

But the group would not say exactly how many people were affected or what the total payments would be.

The ruling relates to the C&G variable rate which was introduced on April 30 last year to reward existing borrowers by offering them a rate that was lower than the C&G standard variable rate.

The group began writing to customers who were not locked into a deal with the group, such as a fixed or capped rate mortgage, offering them the new rate.

But the rate was withdrawn on September 10 following the Ombudsman's decision that Halifax's dual mortgage pricing policy was confusing.

The latest Ombudsman case involved a C&G borrower who applied for the new rate while it was still available but was turned down as being ineligible.

C&G has been ordered to pay the amount the borrower would have saved in interest if the borrower had been allowed to change to the lower rate, plus a small sum for any inconvenience caused.

The group said it would also settle with each borrower whose circumstances are the same as those of the test case, and who complained to it while the new rate was still on offer.

The Ombudsman is currently hearing a second case against the group involving an application

for the lower rate once it was withdrawn.

C&G said it believed it would win this case, and urged other customers to wait for the outcome before they considered any action.

C&G managing director Roger Burden said: "We are disappointed with the Ombudsman's ruling. We feel that the adjudications against all lenders have resulted in the withdrawal of initiatives that were designed to benefit borrowers not disadvantage them."

In February, Nationwide announced it was giving 400,000 borrowers refunds totalling £90 million after charging them a higher rate than other customers.

The move came after the Ombudsman ruled that the mutual had acted unfairly in keeping a borrower on a mortgage rate linked to its higher standard variable rate, instead of transferring them to its new lower base mortgage rate.

Britain's biggest mortgage lender, Halifax, also withdrew its new standard variable rate after the Ombudsman ruled its practice of having two standard variable rates was confusing for customers.